It Might be Time to Review Your PILOT

by Jong Sook Nee on December 30, 2010

For years many municipalities have utilized long term tax exemptions to assist in the development of a variety of projects, from affordable housing developments to urban redevelopment.  These tax exemptions were provided as a means to make a project financially feasible for the developer by exempting the project from municipal taxes and allowing the developer to make a payment in lieu of taxes (a “PILOT”) to pay for municipal services.  There are agreements that have been in existence for as long as 30 or 40 years.  Some agreements created under the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 et seq., allowed a certain amount of flexibility in the calculation of the payments in lieu of taxes.  For some agreements, the percentage of the total costs might adjust at different rates.  In others, the definition of what is included or excluded from the calculation of total project costs or gross annual rents might be different from agreement to agreement.  It is generally a good practice to review your PILOT agreements to ensure that the municipality is appropriately calculating and receiving its agreed-upon payments.  In many such agreements, the developer or the owner of the project may be calculating these payments.  It is far more incumbent in those situations for the municipality to routinely review the annual financial statements of the developer or the owner to ensure proper calculation and collection of the PILOTs.

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